What is a 1031 Exchange?
An IRC §1031 tax deferred exchange allows owners of real property to defer the recognition of a capital gains tax they would have recognized when they sold their property. Exchanging allows investors to reinvest money into new business or investment properties that would otherwise have been paid to the government as a capital gains tax. Tax deferred exchanges are not new – they have been available in one form or another since 1921, and in its current format since 1986.
In order to structure a transaction as an IRC §1031 tax deferred exchange a taxpayer would follow the steps contained in our 1031 Checklist.
Simply put, an exchange is structured as a sale, just like any other sale, and a purchase, just like any other purchase, but with the inclusion of a qualified intermediary to structure the transaction as an exchange. It is very important to involve the qualified intermediary before you start your transaction.